Why Motorola Mobility was a Good Decision for Global Cartel Enforcement

Back in September I wrote an article for Competition Policy International (CPI) on the FTAIA and the now vacated Motorola Mobility I decision. That article can be read here. I was honored to have that article quoted at length by Judge Posner in the subsequent decision: Motorola Mobility v. AU Optronics Corp, 2015 WL 137907 (7th Cir., decided Nov 26, 2015, amended January 12, 2015). In this decision, the Seventh Circuit held that purchases made by Motorola Mobility’s foreign subsidiaries of LCD panels, which the subsidiary then incorporated into products sold to the parent for sale in the U.S., did not give rise to a damage claim under the FTAIA. The Court found that the cartel victims were Motorola Mobility’s foreign subsidiaries. The key fact was Motorola Mobility’s claim that it purchased more than $5 billion worth of LCD panels from cartel members. The Court responded: “That’s a critical misstatement. All but 1 percent of the purchases were made by Motorola’s foreign subsidiaries.”

Since there is little doubt that the defendants did fix prices, the dismissal of 99% of Motorola’s claims seemed like a windfall for the cartelists, and a decision that could lead to under deterrence of global cartel enforcement. Motorola Mobility has expressed its intent to seek review in the United States Supreme Court. Because of the ambiguity of the FTAIA and the myriad fact patterns that can arise, policy consideration will play a large role in ultimately deciding the scope of the FTAIA. I thought Motorola Mobility was rightly decided and that the decision is actually pro-cartel enforcement. I explained why I thought that was so in a recent article CPI published as part of an “Motorola Mobility Redux” issue. My paper is titled: “Why the Motorola Mobility Decision Was Good For Cartel Enforcement and Deterrence” can be found here without charge. (There are other excellent articles in the CPI issue but they require a subscription to view.). Below are excerpts of my thoughts on why I thought the Motorola Mobility decision was good for cartel enforcement.

The initial Seventh Circuit Motorola Mobility, holding that the conduct in question did not “have a direct, substantial and reasonably foreseeable effect” on U.S. commerce, could have seriously jeopardized the Antitrust Division’s international cartel enforcement efforts. Another possible ruling would have allowed Motorola Mobility to seek damages in U.S. courts for purchases made overseas by a foreign subsidiary, but that decision could have created resentment of foreign governments, including those that filed amicus briefs, for having their companies taken into U.S. court to face treble damage actions for sales made overseas. The actual decision to hold only that Motorola Mobility’s claim did not meet the FTAIA’s “gives rise to” requirement was a wise compromise from a policy perspective.

The basic premise of my argument is that international governmental prosecutions are the essential component of global cartel enforcement. Governmental cartel enforcement relies to a great degree on cooperation between U.S and global enforcement agencies. This cooperation takes many forms, both seen (coordinated dawn raids, MLAT treaties, extradition) and unseen (sharing of information). In this context the amicus briefs filed by foreign governments in the Motorola Mobility case were not to be taken lightly. The foreign governments did not object the Antitrust Division’s prosecution of LCD cartel members. In fact, many foreign governments cooperated in that investigation and also imposed their own penalties. But, the amicus briefs expressed concern that their native businesses could be hauled into U.S. court to face treble damage actions for sales that were not made in the United States. In Motorola Mobility, the Seventh Circuit ruled that the LCD cartel had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce; a decision the Antitrust Division sought to support its cartel program. But the Court also held that if a foreign subsidiary of an American company makes purchases in a foreign country, that country is the place for the purchaser to seek its remedy; a decision foreign governments sought to protect the effectiveness of their own competition regimes.

International cartel cooperation has dramatically changed the landscape from the days when a company could fix prices worldwide and face significant sanctions in very few jurisdictions. And, of course, the Antitrust Division has quickly gone from no-jail deal for all foreign conspirators to seeking, and getting, jail sentences for foreign defendants. Deterrence has increased dramatically as a result of close cooperation, respect and trust among competition agencies.

Just as governmental cartel enforcement has proliferated around the world, the idea of collective redress or damage actions for victims has also picked up steam. According to one’s sense of fairness, some foreign damage action regimes may be better than the U.S. system, some worse, and—in some jurisdictions—damage claims may still not be allowed at all. But as with cartel enforcement, allowing each jurisdiction to create its own system of enforcement in cooperation, not competition prompted by forum shopping, may be the best long-term way to further increase worldwide cartel deterrence. Comity dictates that a victim be required to pursue a damage action in the country where it has chosen to make purchases.

Do I think that had the sovereignty interests of foreign governments (as expressed in their amicus briefs) been ignored in Motorola Mobility, these and other governments would have stopped cooperating in international cartel investigations? Would we return to the days of “blocking” statutes and “claw back” provisions? Probably not. But cooperation is a matter of degree and requires mutual trust and respect between partners. It is crucial in a number of areas. The timing of dawn raids is currently a subject of effective international cooperation. Assurances of confidentiality of information is key to the proliferation of effective leniency programs. Even small areas of increased friction in these or other areas could help kill the golden goose—the governmental enforcement actions that precede civil damage cases. Optimal continued cooperation sometimes means respecting partners’ views and processes, even though you’re sure you know best.

The quote below from Tim Worstall of Forbes, while in relation to FCPA enforcement, effectively expresses my concern:

It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about, given their previous actions.

Comity and international cooperation are not the only policy considerations that are relevant to determining the extraterritorial reach of the Sherman Act. There is sincere concern by some that there is still an under deterrence of international cartels. But, it may be that the best overall option for continued increased prevention, detection, and prosecution of international cartels is what was held in Motorola Mobility: where U.S. parents have structured themselves to make purchases overseas through subsidiaries, they must pursue antitrust remedies in those countries in which they set up shop.

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The US Supreme Court has called cartels "the supreme evil of antitrust." Price fixing and bid rigging may not be all that evil as far as supreme evils go, but an individual can get 10 years in jail and corporations can be fined hundreds of millions of dollars. This blog will provide news, insight and analysis of the world of cartels based on the many years my colleagues and I have as former feds with the Antitrust Division, USDOJ.